Southwest Reports 4Q Loss
01-22-2009, 04:44 AM
#1
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Southwest Reports 4Q Loss
DALLAS (AP) -- Southwest Airlines said Thursday that it lost money in the fourth quarter of last year as its fuel-hedging strategy, brilliant when oil prices were rising, lost punch with tumbling energy prices.
It was discount carrier Southwest's second losing quarter of 2008 after 16 straight years without finishing a three-month period in the red.
Southwest lost $56 million, or 8 cents per share, in the fourth quarter, compared with a gain of $111 million, or 15 cents per share, a year earlier.
The loss included net charges of $117 million related to the falling value of its fuel-hedging positions. Without the charges, Southwest would have earned $61 million, or 8 cents per share, which beat expectations of analysts surveyed by Thomson Reuters, who forecast a gain of 5 cents per share excluding special items.
Recently, Southwest has cut back sharply on fuel hedging. It also said Thursday that it plans to reduce capacity this year by 4 percent and will rein in fleet-expansion plans.
The results underscored the fragile state of the airline industry, which was hit last year by skyrocketing fuel prices and then, as fuel prices eased, a recession and slump in air travel demand.
Chairman and Chief Executive Gary C. Kelly called it "one of the most difficult years in aviation's 100-year-plus history."
Kelly gave a mixed outlook for financial performance in the new year at Southwest, which carries more U.S. passengers than any other.
Kelly said Southwest saw a 7 percent increase in revenue per seats times miles flown -- a measure of financial efficiency in the airline industry -- in November and December, and he forecast a similar growth rate for January.
But he cautioned that Southwest sees "notable softness in post-January bookings" and said the company is "not confident" that January's performance will be maintained throughout the first quarter.
Dallas-based Southwest lost money in the fourth quarter despite boosting revenue 9.7 percent, to $2.73 billion, which topped the $2.65 billion forecast of analysts.
That's because Southwest's biggest expense, fuel, rose 23 percent from a year earlier, to $918 million. That surpassed the amount the company spent on labor, $846 million.
Southwest had long been the model for how airlines could cope with rising energy prices. The company aggressively hedged against such increases, in effect locking in lower prices than its competitors were paying at the pump.
But when oil prices fell in the second half of last year, those hedges lost value and led to the fourth quarter charges that dragged Southwest into the red for the fourth quarter.
Even with the fourth-quarter loss, Southwest kept alive its streak of 36 straight years of profit, finishing 2008 with a gain of $178 million, or 24 cents per share. But that paled in comparison to the 2007 profit of $645 million, or 84 cents per share.
Southwest is pinning growth hopes on new markets, including Minneapolis and New York's LaGuardia Airport this year and service soon to Canada and Mexico on partner airlines.
However, Southwest trimmed its fleet-expansion plans. It said Thursday that it expects to take delivery of 10 new Boeing 737 jets in 2010 instead of the previously planned 22. The company said it cut aircraft capital spending by nearly $700 million for both 2009 and 2010.
It was discount carrier Southwest's second losing quarter of 2008 after 16 straight years without finishing a three-month period in the red.
Southwest lost $56 million, or 8 cents per share, in the fourth quarter, compared with a gain of $111 million, or 15 cents per share, a year earlier.
The loss included net charges of $117 million related to the falling value of its fuel-hedging positions. Without the charges, Southwest would have earned $61 million, or 8 cents per share, which beat expectations of analysts surveyed by Thomson Reuters, who forecast a gain of 5 cents per share excluding special items.
Recently, Southwest has cut back sharply on fuel hedging. It also said Thursday that it plans to reduce capacity this year by 4 percent and will rein in fleet-expansion plans.
The results underscored the fragile state of the airline industry, which was hit last year by skyrocketing fuel prices and then, as fuel prices eased, a recession and slump in air travel demand.
Chairman and Chief Executive Gary C. Kelly called it "one of the most difficult years in aviation's 100-year-plus history."
Kelly gave a mixed outlook for financial performance in the new year at Southwest, which carries more U.S. passengers than any other.
Kelly said Southwest saw a 7 percent increase in revenue per seats times miles flown -- a measure of financial efficiency in the airline industry -- in November and December, and he forecast a similar growth rate for January.
But he cautioned that Southwest sees "notable softness in post-January bookings" and said the company is "not confident" that January's performance will be maintained throughout the first quarter.
Dallas-based Southwest lost money in the fourth quarter despite boosting revenue 9.7 percent, to $2.73 billion, which topped the $2.65 billion forecast of analysts.
That's because Southwest's biggest expense, fuel, rose 23 percent from a year earlier, to $918 million. That surpassed the amount the company spent on labor, $846 million.
Southwest had long been the model for how airlines could cope with rising energy prices. The company aggressively hedged against such increases, in effect locking in lower prices than its competitors were paying at the pump.
But when oil prices fell in the second half of last year, those hedges lost value and led to the fourth quarter charges that dragged Southwest into the red for the fourth quarter.
Even with the fourth-quarter loss, Southwest kept alive its streak of 36 straight years of profit, finishing 2008 with a gain of $178 million, or 24 cents per share. But that paled in comparison to the 2007 profit of $645 million, or 84 cents per share.
Southwest is pinning growth hopes on new markets, including Minneapolis and New York's LaGuardia Airport this year and service soon to Canada and Mexico on partner airlines.
However, Southwest trimmed its fleet-expansion plans. It said Thursday that it expects to take delivery of 10 new Boeing 737 jets in 2010 instead of the previously planned 22. The company said it cut aircraft capital spending by nearly $700 million for both 2009 and 2010.
01-22-2009, 09:19 AM
#4
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Posts: 90
Once again....sigh....every quarter somebody has to point this out....
When you look at company quarterly postings you have to look at paper loss and profit. Just about every airline MADE profit in 4th quarter but loss money on investments....
Without the charges, Southwest would have earned $61 million, or 8 cents per share, which beat expectations of analysts surveyed by Thomson Reuters, who forecast a gain of 5 cents per share excluding special items.
I like to think of WN as an investment firm that just happens to fly airplanes.
Dallas-based Southwest lost money in the fourth quarter despite boosting revenue 9.7 percent, to $2.73 billion, which topped the $2.65 billion forecast of analysts.
I guess this is why the stock went up 16% on the release of a 4th quarter loss! No wonder I don't make money in the market. You need to own stock that has horrible news posted and then it will go up!
When you look at company quarterly postings you have to look at paper loss and profit. Just about every airline MADE profit in 4th quarter but loss money on investments....
Without the charges, Southwest would have earned $61 million, or 8 cents per share, which beat expectations of analysts surveyed by Thomson Reuters, who forecast a gain of 5 cents per share excluding special items.
I like to think of WN as an investment firm that just happens to fly airplanes.
Dallas-based Southwest lost money in the fourth quarter despite boosting revenue 9.7 percent, to $2.73 billion, which topped the $2.65 billion forecast of analysts.
I guess this is why the stock went up 16% on the release of a 4th quarter loss! No wonder I don't make money in the market. You need to own stock that has horrible news posted and then it will go up!
01-22-2009, 11:15 AM
#6
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Originally Posted by C5Guy
. . . Just about every airline MADE profit in 4th quarter but loss money on investments....
Have I missed something? Or do you have access to insider information? As of today, only AA, UAL, and SWA have released their data for Qtr 4 and 2008. From their own reports:
AA: 4qtr: $ 340 Mil loss, Ops loss of $ 214 Mil
2008: $ 2.1 Bil loss, Ops loss $ 1.2 Bil
UAL: 4 qtr $1.3 Bil loss, Ops loss of $ 547 Mil
2008: $ 5.3 Bil loss, Ops loss of $ 4.4 Bil (Thanks to 2.27 Bil in "Goodwill impairment", whatever that is.)
Delta reports on the 27th, Continental on the 29th and US Airways on the 29th. Will NWA even make a report or will it be in the Delta report?
So am I misunderstanding your post? Where do you get your info to say "just about every airline made profit in 4th quarter" ? So far, I only see one that made a profit and its stock is going up (15.5% today, as of this moment). Sounds like the market at work to me.
01-22-2009, 12:37 PM
#7
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The 'big picture' is noted in the 3rd to last paragraph.
Even with the fourth-quarter loss, Southwest kept alive its streak of 36 straight years of profit, finishing 2008 with a gain of $178 million, or 24 cents per share.
Even with the fourth-quarter loss, Southwest kept alive its streak of 36 straight years of profit, finishing 2008 with a gain of $178 million, or 24 cents per share.
01-22-2009, 12:58 PM
#8
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Joined APC: Feb 2008
Posts: 19,262
One thing everyone should understand. Losses from fuel hedging which almost all airlines incurred in the last quarter are not paper losses. They are hard cash losses. A paper loss is when you take a goodwill writedown for stock value ect.. A loss from fuel hedges is a hard loss of cash. You have two choices with a underwater hedge. You buy it out by paying cash. Since you do this upfront you can get a discount on the loss and the purchaser hopes fuel will go back up or you can ride the hedge to the end and buy the fuel at the contracted price. SWA chose to buy out most of their hedges this fall. It was very expensive and took away much of the airlines cash. They then sold assets to try and build back up a cash reserve. Other airlines had hedges coming due in the 4Q. They had to buy that fuel at that price and its cost them big. AMR, Delta and UAL were all bit big by this.
01-22-2009, 01:21 PM
#9
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Originally Posted by C5Guy
I like to think of WN as an investment firm that just happens to fly airplanes.
Look, I think SWA is great and all, but when I hear quotes like this (often), I have a hard time not rolling my eyes.
If SWA makes it's money as an investment firm, or an oil hedge business, or a peanut futures company, they really ought to just close the "air wing" down and commit to the profit end of the business. That would be best for the shareholders, after all.
That said, historically when SWA gets a cold, everyone else gets pneumonia. An unprofitable SWA (or technically profitable .. whatever) is a very bad tea leaf for the rest of the industry.
01-22-2009, 01:33 PM
#10
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Originally Posted by sailingfun
One thing everyone should understand. Losses from fuel hedging which almost all airlines incurred in the last quarter are not paper losses. They are hard cash losses. A paper loss is when you take a goodwill writedown for stock value ect.. A loss from fuel hedges is a hard loss of cash. You have two choices with a underwater hedge. You buy it out by paying cash. Since you do this upfront you can get a discount on the loss and the purchaser hopes fuel will go back up or you can ride the hedge to the end and buy the fuel at the contracted price. SWA chose to buy out most of their hedges this fall. It was very expensive and took away much of the airlines cash. They then sold assets to try and build back up a cash reserve. Other airlines had hedges coming due in the 4Q. They had to buy that fuel at that price and its cost them big. AMR, Delta and UAL were all bit big by this.
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